The British government has announced that it will be proposing legislation to have senior bankers face prison for “reckless” risk taking. This news item underscores two dangerous trends. The first is the largely unremarked upon phenomenon of modern democratic governments criminalizing more and more activities. In the U.S., for example, numerous prosecutions have been successfully pursued against corporate managers for the activities of subordinates that the managers didn’t order or even know about. Isn’t it a basic tenet of law that you can’t be charged with a crime you didn’t commit? A corollary to this is penalizing people for offenses they didn’t know they had committed. Yes, there has always been the axiom that ignorance of the law is no excuse. But that is for basic crimes like thievery, which you should know is illegal. In recent years, however, governments–especially regulators such as the EPA–have issued voluminous rules that can easily catch the unwary. The federal tax code is notorious for this. The frightening truth is that if the federal government wants to “get” you or your business, it can. There’s no way for law-abiding citizens not to get ensnared in the regulatory maw. Noted social observer and author Charles Murray is writing a book on what he rightfully describes as the increasing lawlessness of the U.S. government. The blizzard of new rules, many of them vaguely worded, undermines the basic foundation of the rule of law: simplicity and predictability. Murray finds the phenomenon far more widespread than most people realize. The recent Inspector General’s report on extensive, deliberate IRS abuses is but the tip of the iceberg. Another disturbing thing about the British news report is its reflection of the naive belief that more regulation means a safer, less risky financial system and economy. Big Government here and in Europe has perpetrated the astonishing myth that the recent financial crisis was caused by reckless and greedy private-sector bankers. No wonder the public howls for bankers’ heads. The real villains here were governments, particularly central banks. Experience has demonstrated time and again that when a country undermines the value of its currency, bad things happen. Both in the 1970s and in the early part of the last decade the Federal Reserve continually devalued the dollar, and other central banks followed suit with their monies to varying degrees. The result, predictably, was a commodities boom, a surge in prices for houses and farmland, a binge in government spending and a drought in productive investments. Just as a virus corrupts information in a computer, an unstable currency distorts markets. Take housing. People really believed that housing prices could only go up and up. No wonder lending standards went down. If a buyer defaulted, so what? The always appreciating asset would easily cover the mortgage. Under those circumstances purchasing a house with debt and little or no down payment looked like a sure, easy way to get rich. And weren’t brilliant financial engineers, like alchemists, designing securities that were turning packages of subprime …read more
Source: FULL ARTICLE at Forbes Latest
